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Franchisee Dissent
What can be done to keep everyone pushing in the same direction?

"The unit economics always tell the tale. The real war out there—winning the hearts and minds of brand customers—requires franchisor and franchisee alignment. Alignment need not be perfect, but it must be strong—and it must be based on the franchisor’s standards. Once the parties acknowledge this fact, the better their results against the competition.”  

— Kirk Reilly, Gray Plant Mooty

"Consistent expectations, clearly communicated within franchise systems, are strong steps toward minimizing conflict and keeping conflicts from escalating.”

— Nicole Micklich, Urso, Liguori & Micklich

"Have all sides sing, or at least memorize the lyrics of, ‘Walk A Mile In My Shoes,’ and practice doing that.”

— John Dienelt, Quarles & Brady

"Stop emailing and talk to each other! Or, better yet, meet to discuss issues in person!”

— Andrew Bleiman, Marks & Klein

"Most franchisors are trying to do the right thing for their brand and their franchisees. Identifying ‘squeaky wheels’ within the franchise ranks and trying to either resolve their problems or minimize their impact is important because complaining and in-fighting is a cancer to the system.”

— Laura Lewis, Canada Lewis & Associates


M&A Guidance
Consolidation is still a mega trend across the industry; how should we proceed?

"When doing your diligence in connection with an acquisition read the financial statements! Many sophisticated franchisees book unit-level expenses to a parent or management company. We recently dealt with a seller who buried its workman’s comp insurance in the parent company’s financials. When this issue was identified later in the game, and we realized the impact the expense would have when added back at the unit level, the buyer’s bank backed out of the deal.”

— David Paris, Paris Ackerman

"There are certain brands selling off their corporate locations to franchisees. My concern there is that many of these corporate locations are failing. How will a franchisee make them successful when the franchisor was unable to make them profitable and the franchisee must also pay royalties and other ongoing fees to the franchisor?

— Nancy Lanard, Lanard and Associates


Cautionary Words
What do you think everyone in franchising should be wary of or understand a little better?

"The art of smart writing—what not to write, never to write and what needs to always be written—and the use and misuse of the attorney-client privilege is a big deal. Lawsuits are most often won and lost by the written word, and ill-considered emails are now the new ‘gold standard’ that lead to most liability awards.

— Kirk Reilly, Gray Plant Mooty

"Correct use of trademarks and ongoing management of a franchisor’s trademark portfolio is key. Oftentimes, franchisors are not aware that you must use a trademark exactly as it has been registered. Franchisors must also be careful to avoid inadvertently allowing trademark registrations to lapse or failing to register new marks.”

— Faye Lucas, Sotos

"The importance of properly positioning a business for sale prior to marketing the business for sale. Sellers are frequently losing significant value by marketing their businesses for sale before taking steps to maximize value by doing internal due diligence and setting up the business for a successful sale before going to market.”

— Andrew Bleiman, Marks & Klein


Coming Soon
What are you watching for in 2019 and beyond?

"We are already seeing an uptick in bankruptcies—both franchisor and franchisee. I am approaching it by working closely with bankruptcy counsel to figure out the best next move for our clients. Bankruptcy is a different world with a very distinct legal vocabulary.”

— Deborah Coldwell, Haynes & Boone

"In 2019, I’m watching to see whether the number of franchise purchasers declines and also whether there is a shift in the sophistication and/or financial strength of franchise purchasers. As 2018 progressed, it seemed that perhaps the numbers of serious prospective franchisees was declining, and that some franchisors may have been leaning more on brokers for leads than in the past. For now, I am waiting to see whether a trend develops. I am also always interested in the success rates of new franchisees.

— Nicole Micklich, Urso, Liguori & Micklich

"I continue to follow, and remain fascinated by, litigation and other activity with regard to anti-poaching provisions in franchise agreements. There are now perhaps a dozen putative class actions against franchisors, alleging that these provisions violate the antitrust laws. Although my instinct is that the issues that are being raised are a ‘tempest in a teapot,’ I certainly believe that they create some risk for franchise systems; especially in the way the antitrust laws have treated franchising.
Had the franchisors ‘cleaned out their attics,’ eliminating provisions, like the anti-poaching provisions, they don’t need or want, they would have eliminated the risk that now, for at least some, has exploded into class action antitrust litigation that is, at minimum, going to be expensive in terms of legal fees and company time.”

— John Dienelt, Quarles & Brady

"Brands are looking to go international sooner than was previously the experience, and require more sophisticated and comprehensive advice to assist in laying the right infrastructure and protections to venture across borders.”

— Andrae Marrocco, McMillan

"I am seeing landlords aggressively taking action to default franchisee tenants so they can re-rent for full market value. Many of these franchisees negotiated good rental rates and favorable renewal rights during the recession and now the landlord wants out of the lease where they may only be collecting 75 percent of the current market rent. They are using every way imaginable—particularly by strictly enforcing the requirement that rent be paid on or before 5 p.m. on the first day of the month, even though the parties may have historically had other arrangements. I had to get a restraining order against one landlord to prevent him from locking out my client on this same type of issue.”

— Laura Lewis, Canada Lewis & Associates

"The importance of the retail lease negotiations is a legal topic most people do not understand or regard seriously. A retail lease can lead to the success or failure of a retail franchisee’s business. The legal issues in a lease, not just the business terms, are critical to the success or failure of the business.”

— Nancy Lanard, Lanard and Associates


Tech Tactics
From delivery and kiosks to the desire for convenience, what can a system do to update successfully?

"The increase in adoption of new technology and use of third-party delivery platforms, e.g. UberEats, is a big trend. Systems need to ensure franchise agreements are flexible enough to accommodate new technology and product/service delivery models to be integrated into the system.”

— Faye Lucas, Sotos

"More than ever it is critical that franchisors tailor their agreements to their particular franchise system and, as far as is possible, build in future-proof mechanisms (for new technologies, system changes, etc). This lesson has been learned as new technologies are being adopted like never before.”

— Andrae Marrocco, McMillan


CONTENTS: Legal EaglesHot TopicsUpdate Requirements • The New Class
The Hall of FameDispute Resolution

 

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